Minor memos

Minor memos

October 15, 2005 | By Keith Martin in Washington, DC

MINOR MEMOS. Another company got back the federal excise taxes that were included on its phone bill for long-distance calls. HewlettPackard won a $6.4 million refund from the IRS in a federal district court in  California in August. The US government collects a 3% excise tax on long-distance telephone calls, but the statute is outdated, and the tax no longer applies to most long-distance service because of the way it is worded. The IRS won one key case and has lost a series of others. 

Congress has done nothing to update the statute. The latest decision was in the case Hewlett-Packard Company v. United States. The refund covers taxes the company paid during the period 1999 through 2002 . . . . A state legislator in Delaware, who opposes plans by the state to experiment with private toll roads, wrote the IRS in late September to question whether toll road developers can recover  their investments in road projects through depreciation deductions. 

Private roads can normally be depreciated over 15 years. The legislator asked whether this is true if there are federal funds involved or the developer holds the road under a concession agreement with the state. Many states are considering giving private developers the right to collect tolls on major highways in exchange for paying the cost to repair or upgrade them. 

The states are hard up for money .... Florida Power & Light lost a claim in the US Tax Court in August that it was entitled to millions of dollars in “investment tax credits” under transition rules in the Tax Reform Act of 1986. The United States used to allow companies to claim as much as a 10% investment tax credit on the cost of new equipment as an inducement to spend money in ways that might create jobs. The credit acted like a 10% rebate on the cost of new equipment. Congress repealed the benefit at the end of 1985, but
with generous transition rules that allowed credits to be claimed at a reduced rate on investments that were considered already in the works as long as the investments were completed by 1990. An investment was considered already underway in 1985 if the equipment was needed in order to perform a “service or supply contract” under which the company had promised to do something for a third party. The utility argued that several of its obligations were such service or supply contracts, including its tariff to supply electricity to the public at particular rates and interchange contracts with neighboring utilities under which it agreed to connect to their grids. The US Tax Court disagreed. The case is FPL Group v. Commissioner.